A distinguished panel of directors and Korn/Ferry International executives discussed the strategies boards should employ and avoid when instilling a CEO succession plan for their company. Of course, tactics vary depending on company size, structure and industry and our panel covers that spectrum. NACD Directorship President and Publisher Christopher Y. Clark moderated the discussion. What follows are highlights.
Joe Griesedieck: We encourage boards to try to look internally for successors. Don’t go outside if you don’t have to. It’s more risky. Sometimes it’s necessary, but for the most part, if boards get out in front of this three or four years in advance, most often they can get to know the internal candidates a lot better than they know them today.
Richard Daly: The first thing I did was poll individual directors and ask them if they could share with me a time when they felt good at the end of a succession process. None could say that they participated in a succession process that they felt really good about. At Broadridge, I brought an external advisor in, not to run a CEO succession process, but to advise us on what a good process would look like. With the benefit of outsiders, we ranked the talent we had. I went through all the testing and shared the results with every leader tested and the entire board. We were able to see what we look like right now with complete transparency between management and the board.
Margaret Foran: You can’t just import something and think it’s going to work for your organization. You’ve got a different board with different experiences, so you’re going in a different direction. The process really has to be tailored from the very beginning. I think it’s critical to continually have those conversations early on.
Bonnie Hill: I agree that having internal candidates for CEO succession is preferable, but if there are no internal candidates, hiring individuals who can be future candidates is one strategy. If the board does not see viable candidates that can step in on an emergency basis, that’s a concern and there need to be some internal changes.
NACD Directorship: How should a board approach the succession process?
Nels Olson: There are boards that look at CEO succession as a singular event, but should look at it more holistically. Most likely, the successor is internal, which means you have a position that’s going to be open on the senior team. You have to look at not just the CEO, but down a rung or two.
Philip Lochner: Boards tend to defer to successful CEOs and successful CEOs tend to dominate the process. I think boards sometimes fail to ask whether the CEO’s recommendation is really the right person to lead the company forward. I’m a big believer in going outside and benchmarking—even if you have viable internal candidates.
Robert Friedman: I think it is less about CEO succession than it really is about understanding the package of management. It’s not about an individual, particularly depending on the category.
Hill: If a CEO can give you only one potential successor, that in and of itself is a challenge. One plan for developing successors is to alternate them through different senior-level positions—I’ve seen it work. It doesn’t work each time, but the process gives the management team a more well-rounded experience.
Daly: Picking a CEO, and then succession for the CEO, are jobs one and two for boards. Bringing [outside] professionals in not only gets the board to a comfort level that they deserve to be at, but they also can check the boxes with brutal candor and transparency.
ADDITIONAL STORIES IN THE DIRECTOR’S GUIDE TO CEO SUCCESSION:
Nothing Succeeds Like Succession
Expect the Unexpected Before the Crisis Calls
Overcoming Resistance to Succession
Executive Compensation Programs Can Help or Hurt CEO Succession
NACD Directorship: How can a board reach out beyond board meetings?
Hill: At Home Depot, we’ve structured dinners around specific departments. For example, we may have the marketing team for dinner and
one or two directors at each table. The discussion at each table is different; however, the subject matter is marketing. Having the board interface with associates from within the same department provides good feedback for board discussions, as well as a deeper understanding of the department involved.
Kenneth Kopelman: The day before every board meeting, in the 60 minutes after committee meetings are done but before the board dinner starts, each of our directors sits down for a one-on-one with a senior person.These sessions are completely unscripted, with no agenda, no PowerPoint, nothing. Within the space of a year, each director gets to meet six to eight senior managers, who may one day be part of the CEO succession plan, in a fairly intimate way. Watching an executive or a team present inside the boardroom—when the full board and the CEO are there—can be a lot different than sitting in their office, with no required subject matter, no agenda. It can be very high-quality time in terms of sizing them up and getting to know them.
NACD Directorship: How should boards manage second- and third-choice candidates?
Ann Reynolds: When it’s a horse race for the CEOship, two or three top-performing people in the company are told that, depending on how they perform and how they interview with the board, one of them will be anointed. Having experienced it, this is truly a horrible process, and should never be repeated, if at all possible.
Foran: It may work in companies such as GE where you have separate businesses and people are really not interacting. If you’ve got one business, there are some major challenges.
Steve Mader: It creates winners and losers in the eyes of the rest of the organization as well. So everybody’s watching the competition, it’s a pronounced competition and it’s an announced competition.
NACD Directorship: How does age play into selecting a candidate?
Lochner:If the person is put into the CEO’s job at say, age 50, their personality isn’t going to change, their skill set isn’t going to change by much. So it’s a matter of understanding that at the outset and then being able to fill in if somebody’s not strong on the financial side. Maybe you need a better CFO. It’s a package deal in some sense.
Reynolds: You generally don’t get the exact date that he or she will retire—even if they are a competent CEO—because the minute they announce that, they start to feel their power dissipate. So you’ve got this timing difficulty, and if people are aspiring to the CEOship, and some of them are very good, you want to hold onto them.
NACD Directorship: How should directors perceive their efforts in planning for a successor?
Reynolds: What’s necessary is a great deal of patience and a back-and-forth exchange between board members that has its grounding in the fact that you have tried really hard over the years to relate to fellow board members, so you have respect for them.
Ilene Lang: Companies should not be on hold, waiting for the board meeting when the decision [on succession] is to be made. We’ve seen recent examples where company transitions were smoother because there was transparency. The lesson here is that the company benefits from a collaborative process, not an internal competitive one with a win-ner-takes-all and a losers-totally-out mindset.
The best candidates come from within and the board’s knowledge of them in roles outside the boardroom.